C. Summary of Significant Accounting Policies
A summary of the significant accounting policies applied in the preparation of the financial statements are
as given below. These accounting policies have been applied consistently to all periods presented in the
financial statements.
1. Property, plant and equipment
1.1 Initial recognition and measurement
Items of property, plant and equipment are initially recognized at acquisition cost (net of taxes which
are claimed as input credits). Subsequent measurement is done at cost less accumulated
depreciation/amortization and accumulated impairment losses. Cost includes installation and
expenditure during construction period (including interest on borrowings till the date of capitalization),
that is directly attributable to bringing the asset to the location and condition necessary for it to be
capable of operating in the manner intended by management.
The mineral deposits and mining rights are stated at the estimated realizable value, based on valuation
by an independent valuer. When parts of an item of property, plant and equipment have different useful
lives, they are recognized separately.
Deposits, payments/liabilities made provisionally towards compensation, rehabilitation and other
expenses relatable to land in possession are treated as cost of land.
In the case of assets put to use, where final settlement of bills with contractors is yet to be effected,
capitalization is done on provisional basis subject to necessary adjustment in the year of final
settlement.
Assets and systems common to more than one generating unit are capitalized on the basis of engineering
estimates/assessments.
Expenditure on major inspection and overhauls of generating unit is capitalized, when it meets the asset
recognition criteria.
Items of spare parts, stand-by equipment and servicing equipment which meet the definition of
property, plant and equipment are capitalized. Other spare parts are carried as inventory and recognized
in the statement of profit and loss on consumption.
1.2 Subsequent costs
Subsequent expenditure is recognized as an increase in the carrying amount of the asset when it is
probable that future economic benefits deriving from the cost incurred will flow to the enterprise and
the cost of the item can be measured reliably.
The cost of replacing part of an item of property, plant and equipment is recognized in the carrying
amount of the item if it is probable that the future economic benefits embodied within the part will flow
to the Company and its cost can be measured reliably. The carrying amount of the replaced partis
derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in
profit or loss as incurred.
1.3 Decommissioning costs
The present value of the expected cost for the decommissioning of the asset after its use is included in
the cost of the respective asset if the recognition criteria for a provision are met.
1.4 Derecognition
Property, plant and equipment is derecognized when no future economic benefits are expected from their
use or upon their disposal. Gains and losses on disposal of an item of property, plant and equipment are
determined by comparing the proceeds from disposal with the carrying amount of property, plant and
equipment, and are recognized in the statement of profit and loss.
1.5 Depreciation/amortization
Depreciation on Property, plant and equipment other than those mentioned hereunder is recognized in
statement of profit and loss on a straight-line basis over the estimated useful lives of each part of an item
of property, plant and equipment, as estimated by the Management / specified in Schedule II of the
Companies Act, 2013
Items of property, plant and equipment costing less than 0.05 Lacs are depreciated fully in the year of
acquisition.
Depreciation on the mineral deposits and mineral rights is provided, based on the estimated present value
of the consumption over the remaining estimated useful period, at an equated amount of the total
consumption so arrived.
Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is
reasonably certain that the Company will obtain ownership by the end of the lease term.
Depreciation on the following assets is provided on their estimated useful life ascertained on technical
evaluation by Management:
Depreciation on additions to/deductions from property, plant & equipment during the year is charged on
pro-rata basis from/up to the month in which the asset is available for use/disposed.
Where the cost of depreciable assets has undergone a change during the year due to increase/decrease in
long term liabilities on account of exchange fluctuation, price adjustment, change in duties or similar
factors, the unamortized balance of such asset is charged off prospectively over the remaining useful life
determined following the applicable accounting policies relating to depreciation/ amortization.
Where it is probable that future economic benefits deriving from the cost incurred will flow to the
enterprise and the cost of the item can be measured reliably, subsequent expenditure on a PPE along
with its unamortized depreciable amount is charged off prospectively over the revised useful life
determined by technical assessment.
In circumstance, where a property is abandoned, the cumulative capitalized costs relating to the property
are written off in the same period.
2. Capital work-in-progress
The cost of self-constructed assets includes the cost of materials & direct labour, any other costs directly
attributable to bringing the assets to the location and condition necessary for it to be capable of operating
in the manner intended by management and borrowing costs.
Expenses directly attributable to construction of property, plant and equipment incurred till they are ready
for their intended use are identified and allocated on a systematic basis on the cost of related assets.
Deposit works/cost plus contracts are accounted for on the basis of statements of account received from the
contractors.
Unsettled liabilities for price variation/exchange rate variation in case of contracts are accounted for on
estimated basis as per terms of the contracts.
3. Intangible assets and intangible assets under development
3.1 Initial recognition and measurement
Intangible assets that are acquired by the Company, which have finite useful lives, are recognized at cost.
Subsequent measurement is done at cost less accumulated amortization and accumulated impairment losses.
Cost includes any directly attributable incidental expenses necessary to make the assets ready for its
intended use.
Expenditure incurred which are eligible for capitalizations under intangible assets are carried as
intangible assets under development till they are ready for their intended use.
3.2 Derecognition
An intangible asset is derecognized when no future economic benefits are expected from their use or
upon their disposal. Gains and losses on disposal of an item of intangible assets are determined by
comparing the proceeds from disposal with the carrying amount of intangible assets and are recognized
in the statement of profit and loss.
3.3 Amortization
Other intangible assets are amortized on straight line method over the period of legal right to use or life
of the related plant, whichever is less.
4. Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction/exploration/development or
erection of qualifying assets are capitalized as part of cost of such asset until such time the assets are
substantially ready for their intended use. Qualifying assets are assets which take a substantial period of
time to get ready for their intended use or sale.
When the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the
borrowing costs incurred are capitalized. When Company borrows funds generally and uses them for the
purpose of obtaining a qualifying asset, the capitalization of the borrowing costs is computed based on the
weighted average cost of general borrowing that are outstanding during the period and used for the
acquisition, construction/exploration or erection of the qualifying asset.
Capitalization of borrowing costs ceases when substantially all the activities necessary to prepare the
qualifying assets for their intended uses are complete. Borrowing costs consist of interest and other costs
that an entity incurs in connection with the borrowing of funds. Income earned on temporary investment of
the borrowings pending their expenditure on the qualifying assets is deducted from the borrowing costs
eligible for capitalization.
Borrowing costs include exchange differences arising from foreign currency borrowings to the extent that
they are regarded as an adjustment to interest costs.
Other borrowing costs are recognized as an expense in the year in which they are incurred.
5. Inventories
Inventories are valued at the lower of cost and net realizable value. Cost includes cost of purchase, cost of
conversion and other costs incurred in bringing the inventories to their present location and condition. Cost
is determined on weighted average basis. Costs of purchased inventory are determined after deducting
rebates and discounts. Net realizable value is the estimated selling price in the ordinary course of business,
less estimated costs of completion and the estimated costs necessary to make the sale.
The diminution in the value of obsolete, unserviceable and surplus stores & spares is ascertained on review
and provided for.
6. Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash at banks and on hand and short-term deposits
with an original maturity of three months or less, which are subject to an insignificant risk of changes in
value.
7. Government grants
Government grants are recognized initially as deferred income when there is reasonable assurance that they
will be received and the Company will comply with the conditions associated with the grant.
Grants that compensate the Company for the cost of an asset are recognized in profit or loss on a systematic
basis over the useful life of the related asset.
Grants that compensate the Company for expenses incurred are recognized over the period in which the
related costs are incurred and deducted from the related expenses.
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